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Counting the cost

2008-08-07T00:00:00+01:00

ABI market report shows the cost of last summer's floods.

The extent of the financial impact of last summer’s floods has been laid bare by ABI figures showing that insurers made an underwriting loss in the UK of £0.9bn in 2007, compared to a record £1.5bn profit in 2006.

The latest figures show that the worldwide underwriting profit of UK insurers also fell drastically, from a profit of £1.6bn in 2006 to a profit of £95m in 2007. Premiums for UK risks rose by just 2.8% to £31.3bn while claims for UK risks spiralled by 14.1% to £21.6bn. The sharp increase in claims, linked to the summer’s devastating floods, led to the massive drop in underwriting profit.

Despite rising commission demands from consolidators, expenses and commissions as a percentage of premiums have continued to fall. Commissions were 9.7% of premiums in 1987 and just 3.9% in 2007. Management expenses were 14.6% of premiums in 1987, but just 5.6% in 2007.

Property insurance was the worst hit line of business, with a 46% rise in net claims, to £6.7bn, incurred by the floods, while premiums rose by only 1.5%. This resulted in the lowest underwriting ratio – minus 17.1% – since 1991. Motor insurance made an underwriting loss for the thirteenth year in succession, while liability insurance continued its recovery from many years of losses.

The ABI figures are based on data provided to the organisation by all its members and some non-members. They relate to the UK company market and exclude any business written by Lloyd’s.

An ABI spokesman said: “The 2007 floods saw four years’ worth of bad weather claims in just a few weeks, and this is reflected in the underwriting loss. This is why the industry has worked so hard for an adequate flood defence strategy as such losses are unsustainable, especially with climate change threatening to make such occurrences more common. The small increase in premiums reflects the competitive market in property insurance."